The meeting offered pertinent information related to the issues facing the workers compensation system while also offering an overview of the issues and trends that impact the entire insurance industry.
Bill Donnell, CPCU, president and chief executive officer of NCCI, discussed how workers compensation must remain relevant going forward and deliver a system "that is stable and balanced" in his presentation, The [email protected] He stressed that, "if you don't stay relevant, you're out of business," using Blockbuster versus Netflix as an example.
To avoid the same fate, the workers compensation stakeholder must be amenable to "adapting"—the "word" used to describe the state of the workers compensation world at the 2017 Annual Issues Symposium. Mr. Donnell stated that change is coming faster than we've ever seen before. An area he focused on is that there are different worker and employee needs resulting from disruption largely driven by technology. The service industry has clearly been impacted by technology as retail sales continue to be increasingly conducted online. Amazon through its concept Amazon Go is contemplating opening brick and mortar stores. The twist is that there will be no cashiers.
Another industry segment expected to be increasingly impacted by technology is transportation. This industry segment currently accounts for 7–8 percent of the current workers compensation premium total. But, with driverless vehicles on the horizon, "adapting" will be key to the future of this industry. In conclusion, Mr. Donnell stressed that the workers compensation industry has faced change before and that it knows how to "adapt."
State of the Line Report
The State of the Line Report (video presentation) was delivered by NCCI Chief Actuary Kathy Antonello, FCAS, FSA, MAAA. The presentation began with Ms. Antonello examining the uncertainty of our world. She advised that it is the role of NCCI to provide insight when there is uncertainty.
NCCI uses the tremendous amount of workers compensation data that it collects to help forecast changes and anticipate how those changes will impact business. Ms. Antonello then provided an overview of the property and casualty industry results, noting that net written premium in 2016 was up 2.6 percent from 2015, driven by personal and commercial auto lines, and that the calendar year net combined ratio for 2016 came in at 101 percent, up 3 percentage points from 2015.
Regarding workers compensation specific statistics, she noted that the calendar year net combined ratio for 2016 remained at 94 percent, unchanged from 2015, and that net written premiums for 2016 remained flat. And, again in 2016, for the fifth year in a row, residual market premium and participation remained steady.
Shifting to workers compensation loss drivers, Ms. Antonello advised that lost-time claim frequency continued to decline at 4 percent for 2016. The decline was a little less than 2015's 4.6 percent, but the trend downward shows no evidence of slowing down.
As to the medical components of a claim, medical costs now account for 60 percent of total benefits, so it is important to understand its cost components. NCCI medical data reports shed light on the components that are driving medical costs. In 2015, the component split looked like this: physician payments and hospital costs accounted for almost 70 percent of all medical costs (38 percent physicians, 18 percent hospital outpatient, and 13 percent hospital inpatient), with drug prescriptions as the next highest component at 11 percent. This information clearly points to the importance of fee schedules as a medical cost containment mechanism.
An overview of the US economy and its impact on workers compensation and the economies of the rest of the world was provided by Kurt Karl, PhD, chief economist of Swiss Re, in his presentation, The US Economy's Effect on Financial, Insurance, and Workers Compensation Issues. Dr. Karl believes that the moderate growth in the US economy will become the norm. He also offered a chart that reviews the possible impact on the US economy of various proposals that have been made by the Trump administration. He stressed that quite a bit of uncertainty surrounds the fate of these proposals.
Dr. Karl then moved on to review the outlook for the insurance market by highlighting the impact of its significant drivers and workers compensation claim influences. He noted that the demand for workers compensation is driven by factors in the economy and is likely to grow at the same moderate pace as the economy. Finally, he examined the impact of technology on workers compensation, building on the point made by Mr. Donnell in his presentation. Dr. Karl observed that technology continues to impact manufacturing largely driven by automation and that will reduce payrolls and, therefore, claims from that segment. He stated that technology is also poised to enhance workplace safety through the use of wearables for risk monitoring. While this is a positive impact, he warned that the potential exists for unexpected consequences resulting from cyber-risks.
"InsurTech" and the Industry and Workers Compensation
In the "InsurTech" and Its Implications on the Industry and Workers Compensation presentation, David Hollander, global insurance advisory lead with EY, also echoed some of Mr. Donnell's remarks. Mr. Hollander advised that technology will not slow down and that the future belongs to the connected. He also offered his belief that cyber-terrorism is the biggest risk in the world. Mr. Hollander also reviewed trends in workers compensation: the positive (safer workplaces due to wearables), the challenges (restructuring the labor market), and the opportunities (utilizing connected devices). Additionally, he discussed offered the following thoughts on "InsurTech."
The insurance industry has been slow to adapt technology.
The concepts of insurance will be challenged as more data becomes available.
The use of wearable technology has just begun and will change the face of technology.
Workers Compensation Research
The 2017 presentations related to workers compensation research topics focused on medical cost drivers. Alex Swedlow, president of the California Workers Compensation Institute, reviewed the positive impact of the most recent California workers compensation reforms in Medical Cost Trends & Emerging Issues in the California Workers Compensation System. Barry Lipton, FCAS, MAAA, practice leader and senior actuary at NCCI, presented Medical Cost Trends Then and Now, in which he examined the 20-year history of workers compensation average medical cost per lost-time claim. He also explored medical care breakthroughs, such as hyperelastic bone made by a 3D printer that could alter the future of related workers compensation medical care and its costs.
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